U.S. moves to cut Huawei off from global chip suppliers as China eyes retaliation

WASHINGTON – The Trump administration went Friday to block global chip supplies to blacklisted telecommunications equipment giant Huawei Technologies, sparking fears of Chinese retaliation and hammering shares of US chip-making equipment manufacturers .

A new rule, unveiled by the Department of Commerce and first reported by Reuters, is expanding the U.S. authority to require licenses for the sale to Huawei of semiconductors made overseas using U.S. technology, greatly expanding the range to stop exports to the world’s largest smartphone maker.

“This move puts America first, American companies first, and US national security first,” a senior Commerce Department official told journalists in a telephone briefing on Friday.

Huawei, the world’s largest telecom equipment manufacturer, did not respond to a request for comment.

News of the move against the company hit European stocks as traders sold the profit of the day, while the share of chip equipment manufacturers such as Lam Research and KLA Corp fell 5 and 3 percent in US trade, respectively.

China’s response was quick, with a report by China’s Global Times on Friday that Beijing was willing to put U.S. companies on an “unreliable entity list” as part of countermeasures in response to new limits on Huawei.

The measures include initiating investigations and imposing restrictions on US companies such as Apple Inc, Cisco Systems Inc and Qualcomm Inc, as well as suspending the purchase of Boeing Co aircraft, said the report, citing a source.

The Commerce Department’s rule, effective Friday, but with a 120-day grace period, also affects Taiwan Semiconductor Manufacturing Co Ltd, the largest contract chip manufacturer and major Huawei supplier, who announced plans to build a US factory on Thursday.

TSMC said on Friday that it is “closely following the change to the US export rule” and is working with outside advisors to “conduct legal analysis and ensure a comprehensive investigation and interpretation of these rules”.

The department said the rule is intended to prevent Huawei from continuing to “undermine” its blacklisted status as a company, meaning that suppliers of US-made advanced technology must apply for a US government license before selling to the US.

“There is a very technical loophole that has actually allowed Huawei to use US technology with foreign fab manufacturers,” Commerce Secretary Wilbur Ross told Fox Business News on Friday, calling the rule change a “very custom thing “to correct that loophole. ‘

The company was added to the trade department’s “entity list” last year due to concerns over national security amid accusations from Washington that it violated US sanctions against Iran and could spy on customers. Huawei has denied the allegations.

Frustration among Chinese hawks in the administration that Huawei’s listing of entities was not doing enough to curb access to supplies led to an attempt, first reported by Reuters in November, to tackle the company that culminated on Friday’s rule .

Washington attorney Kevin Wolf, a former US Department of Commerce official, said the rule appeared to be a “new, complex extension of US export controls” for spa-related items made with US technology abroad and to Huawei have been sent. But he emphasized that chips designed by companies other than Huawei and manufactured with American technology can still be sold to the company without the licensing requirement.

While the new rules apply to chips, regardless of their level of sophistication, a senior U.S. Secretary of State informing reporters on Friday opened the door to some flexibility for the company, echoing previously by the Trump administration. Huawei granted an extension.

“This is a licensing requirement. It does not necessarily mean that things are refused, “the official said, adding that the rule gives the US government more” visibility “on the shipments. “We’ll have to see what is done with those applications … Each application will be judged on its merits.”

After essentially excluding Huawei from purchases from U.S. suppliers, the trading department licensed some of Huawei’s largest U.S. partners to continue selling to the company, while also allowing smaller nationwide telecom companies to continue to purchase Huawei equipment to run their networks to keep.

Huawei, which needs semiconductors for its smartphones and telecommunications equipment, is at the heart of a battle for global technological dominance between the United States and China, whose relationship has been weakened in recent months by the origins of the deadly corona virus.

While the rule change aims to squeeze out Huawei and hit the chip foundries it relies on, US chip maker equipment manufacturers may suffer long-term pain as chip makers develop new sources of equipment beyond the reach of the US rules.

But for now, most chipmakers rely on equipment produced by U.S. companies like KLA, Lam Research and Applied Materials, which did not respond to requests for comment.

Some of the complex tools needed to make chips come from companies outside the United States, such as Japan’s Tokyo Electron and Hitachi and the Dutch ASML, but analysts say it would be difficult to put together a full toolchain suggest making some American equipment for advanced semiconductors.

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